Health reformers often talk about tweaking the medical reimbursement system in order to create better incentives for providers to hold down costs or increase quality. But one incentive that’s frequently overlooked is the incentive to avoid being sued. Right now the incentive is pretty strong in part because health providers have essentially no way to make a binding agreement with patients that limits that patients’ ability to sue.
In The New York Times, University of Chicago economist Richard Thaler suggests experimenting, on a limited scale, with letting some high-quality health providers require that patients give up their right to sue for bad health results as a condition of service. Here’s his pitch:
Thus, to encourage high-quality health care providers to adopt sensible practices, let’s offer an inducement. Those with a record of providing high-quality care at good value could apply to the government for a safe harbor from malpractice suits. Organizations that receive this status could require patients to waive their right to sue for adverse outcomes. Of course, no patient would be forced to stick with such a provider, and with the new rules on pre-existing conditions under the health care reform law, those who wanted to retain their right to sue could go elsewhere. And an organization could lose this right if its quality declines.
Courts have previously ruled that such waivers are illegal, presumably because they do not believe patients should be trusted to make this judgment, but the experiment I suggest can test this concept in a limited way, starting with only the highest quality providers.
Personally, I would gladly give up my right to sue. Maintaining it is implicitly costing me money, for which I get little in return. Over the past five years, malpractice insurance companies have paid out to patients only 37 percent of the premiums they collect, according to the National Association of Insurance Commissioners. About 40 percent of that money goes to lawyers, meaning that patients end up with less than a quarter of the dollars that doctors and hospitals pay for insurance. That is a return that makes state lotteries look like good investments.
Right now the court system generally does not trust patients to make their own decisions about whether or not to give up the right to sue their medical providers. That adds to the expense of health care because it means that doctors take sometimes costly extra steps to avoid being sued, performing tests or other procedures that in all likelihood are unnecessary. It’s hard to say what sort of savings this might produce; if I had to guess, the aggregate savings would be of moderate size at best, and possibly very small, but individual savings could be large. As Thaler notes, tort reform is complicated, and at least one prominent attempt to restrain malpractice costs — legislation in Texas capping noneconomic awards for malpractice at $250,000 — did not result in savings.
But the potential for savings is only one reason to try something like Thaler’s idea. The other is to start the process of freeing patients and doctors from a paternalistic legal system that operates under the assumption that patients are incapable of making their own decisions about their health and medical care.